73479 global retail industry overview
TRANSCRIPT
Overview Of
Indian Retail Industry (July 08)
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Overview of Global Retail Industry
2.1 Introduction
Retailing has played a major role in increasing productivity across a wide range of consumer
goods and services the world over. In the developed countries, retail industry has transformed
into a full-fledged industry where more than three-fourths of the total retail trade is done by the
organised sector. Though India boasts of an emerging retail market with top international
retailers like Wal-Mart and Carrefour keen to establish their presence, it does not figure on the
list of top 10 most preferred global retail markets. Out of the BRIC (Brazil, Russia, India and
China) countries, China and Russia are in the top 10 list.
But in terms of investment in emerging markets, India tops the list according to a report of AT
Kearney.
Following are the characteristics of global retail industry:
1. The global rated retail universe is very diverse, covering a large number of segments
2. Global retail industry exhibits very diverse operational and financial dynamics
3. Of the global retail industry, 38% of publicly-rated retailers is investment grade and 62% is
speculative trade.
The Top 10 global retail players and the information on their sales and growth rates is
summarised in the following Table.
Serial No.
Global Leaders/ Country Sales* (US$m)
Growth (%) (2001-2006)
1. Wal-Mart Stores Inc. (USA) 348650 11.1 2. Carrefour S.A (France) 97861 2.3 3. The Home Depot Inc. (USA) 90837 11.1 4. Tesco PLC. (UK) 79976 12.5 5. Metro AG (Germany) 75225 4.0 6. The Kroger Co. (USA) 66111 5.7 7. Target Corp. (USA) 59490 8.3 8. Costco Wholesale Corp.
(USA) 60151 11.6
9. Sears Holding Corp. (USA) 53012 8.0
* Sales Value as of 2006 Source: Deloitte & Cygnus Research
10. Schwarz Uternehmens Treuhand KG (Germany)
52422 12.0
Organised retailing in most economies typically passes through four distinct phases in its
evolution cycle. In the first phase, new entrants create awareness of modern formats and raise
consumer expectations. In the second phase consumers demand modern formats as the markets
develop – thereby leading to a strong growth. As with the life cycle of any industry, the high rate
of growth would lead to a stage of mature market wherein all the players would strengthen their
positions. This will be followed by the final phase where the market would reach a saturation
point, the growth would be limited and for sustainable growth, retailers would explore new
markets as well as evaluate inorganic opportunities.
2.2 Different Retail Formats across the World
Across the world retailer is involved in more than one format to operate in different
circumstances to cater to its consumers. Different types of retail formats across the world are:
Mom-and-Pop – Represent the small, individually owned and operated retail outlet. In many
cases these are family-run businesses catering to the local community.
Mass Discounters - These retailers can be either general or specialty merchandisers but either
way, their main focus is on offering discount pricing. Compared to department stores, mass
discounters offer fewer services and lower quality products.
Warehouse Stores – This is a form of mass discounter that often provides even lower prices
than traditional mass discounters. In addition, they often require buyers to make purchases in
quantities that are greater than what can be purchased at mass discount stores. These retail
outlets provide few services, and product selection can be limited.
Furthermore, the retail design and layout is, as the name suggests, warehouse styled, with
consumers often selecting products off the ground from the shipping package. Some forms of
warehouse stores, called warehouse clubs, require customers to purchase memberships in order
to gain access to the outlet.
Category Killers – Many major retail chains have taken what were previously very narrowly
focused, small specialty store concepts and have expanded them to create large specialty stores.
These so-called “category killers” have been found in such specialty areas as electronics (e.g.
Best Buy), office supplies (e.g. Staples) and sporting goods (e.g. Sport Authority).
Department Stores – These retailers are general merchandisers offering mid-to-high quality
products and strong level of services, though in most cases these retailers would not fall into the
full-service category. While department stores are classified as general merchandisers, some
carry a more selective product line. For instance, while Sears carries a wide range of products
from hardware to cosmetics, Nordstroms focuses its products on clothing and personal care
products.
Boutique – This retail format is best represented by a small store carrying specialised and often
high-end merchandise. In many cases a boutique is a full-service retailer following a full-pricing
strategy. It is individually managed and specialised retail format.
Catalogue Retailers – Retailers such as Lands’ End and LL Bean have built their business by
having customers place orders after seeing products that appear in a mailed catalogue. Orders are
then delivered by a third-party shipper.
E-tailers - Possibly the most publicised retail model to evolve in the last 50 years is the retailer
that principally sells via the Internet. There are thousands of online-only retail sellers of which
Amazon.com is the most famous. These retailers offer shopping convenience including being
open for business all day, every day. Electronic retailers or e-tailers also have the ability to offer
a wide selection of product since all they really need in order to attract orders is a picture and
description of the product. That is, they may not need to have the product on-hand the way
physical stores do. Instead an e-tailer can wait until an order is received from his customers
before placing the order with the suppliers. This cuts down significantly on the cost of
maintaining products in-stock.
Franchise – A franchise is a form of contractual channel in which one party, the franchisor,
controls the business activities of another party, the franchisee. Under these arrangements, an
eligible franchisee agrees to pay for the right to use the franchisor’s business methods and other
important business aspects, such as the franchise name.
For instance, McDonalds is a well-known franchisor that allows individuals to use the
McDonalds name and methods to deliver food to consumers. Payment is usually in the form of a
one-time, upfront franchise fee and also on-going percentage of revenue. While the cost to the
franchisee may be quite high, this form of retailing offers several advantages including:
1. Allowing the franchisee to open a retail outlet that may already be known to local
customers, and
2. Being trained in operating the business which may allow the franchisee to be successful
much faster than if they attempted to start a business on their own.
Convenience – As the name implies these general merchandise retailers cater to offering
customers an easy purchase experience. Convenience is offered in many ways including through
easily accessible store locations, small store size that allows for quick shopping, and fast
checkout. The product selection offered by these retailers is very limited and pricing can be high.
Table 2.1: Retail Formats - Summary Chart
Format TargetMarket
Product Offerings
Pricing Strategy
PromotionEmphasis
Distribution Service Level
OwnershipStructure
Vending – This category includes automated methods for allowing consumers to make
purchases and quickly acquire products. While most consumers are well aware of vending
machines allowing customers to purchase smaller items, such as beverages and snack food,
newer devices are entering the market containing more expensive and bulkier products. These
systems require the vending machine have either Internet or telecommunications access to permit
purchase using credit cards.
Mom-And-Pop
Mass Specialty
General Specialty
Competitive AdvertisingDirect Mail
Stand-AloneStrip CentreShopping Area
Assorted Individually O/O
Mass Discounter
Mass General Discount Advertising Stand-AloneStrip-Centre
Self Corp. Chain
Warehouse Store
Mass General Discount Advertising Stand-Alone Self Corp. Chain
Category Killer
Mass Specialty Discount Competitive
Advertising Stand-AloneStrip Centre
Assorted Corp. Chain
Department Store
Specialty General Competitive Advertising Shopping Area Shopping Mall
Assorted Corp. Chain
Boutique SpecialtyExclusive
Specialty Full Selling Stand-AloneStrip CentreShopping Area
Full Individually O/O Chain
Catalogue Mass Specialty
General Specialty
Discount Competitive
Direct Mail Direct Marketer
Assorted Corp. Structure
E-tailer Mass Specialty
General Specialty
Discount CompetitiveFull
Advertising Online Seller
Self Corp. Structure
Franchise Mass Specialty Competitive Advertising Stand-Along Strip Centre
Assorted Contractual
Convenience Mass General Full Advertising Stand-Alone Self Individually O/O Corp. Chain
Vending Mass Specialty Full None Vending Self Corp. Structure
Source: Knowthis.com
2.3 Consumer Demographic Trends
The retailers are facing new challenges, as the demographic characteristics of customers are
changing. Changes in population, the composition of households, age, income, and ethnicity
must be understood in relation to changes in shopping behaviour and expenditures.
2.3.1 Changing Households As households become smaller and number of wage earners increase, the percentage of income
used for housing and transportation will continue to limit the amount available for non-
automotive retail. Many households are spending less time shopping. Accordingly, time-saving,
convenience goods and services present opportunities for retailers. When people shop, they want
to know that the store is open and that they have what they want. As households have fewer
children, they are less likely to shop at the family department store that was once found
downtown. An estimated 80% of all shopping are done by women. This suggests that retailers
should examine the mix of products and services that will attract women shoppers.
2.3.2 Changing Income Higher income households will continue to be a primary target for many retailers. These
consumers spend 63% more than the average household on food and account for more than half
of all spending on products such as men’s apparel and household maintenance supplies and
equipment. The pressure to develop retail closer to higher income suburban households will
continue to require people to “shop with their wheels.” Today’s consumer wants “park by the
door and see the open sign.” Given historic trends, both the lower-income and upper-income
segments of the population will provide greater market opportunities than the traditional middle-
income segment of the population.
2.3.3 Aging Population The boomers represent a vast, relatively affluent and expanding market. Retailers should
recognise that they have reached an age when they have less to spend on retail goods and more
on housing, education and health. Buying behaviours of different age segments are changing.
Just because a 40-year-old today will be 50 in ten years doesn’t mean that he or she will be
buying like today’s 50-year-olds. Increasing proportion of infant and child products today are
now being purchased by grandparents.
Average annual rate of change of the total population and the population in broad age groups by
major area, medium variant, 2005-2050 (Expected) in terms of percentage is given in the Table
below.
Age-wise Rate of World Population Change (%)
Particulars 0-14 15-59 60+ 80+ Total
Population
World -0.03 0.65 2.43 3.38 0.76
Africa 0.85 2.04 3.25 3.88 1.72
Asia -0.34 0.48 2.74 4.04 0.65
Europe -0.41 -0.70 0.93 2.02 -0.21
L. America -0.41 0.59 2.92 3.91 0.71
N. America 0.25 0.38 1.73 2.42 0.65
Average change under the age 14 for countries outside Africa and North America is because of
family planning and population control measures by respective governments. The major
population growth is in developing nations across globe. Thus, the potential of retail growth is
very high in these developing countries (Asia and Africa). Asia gives more opportunities owing
to its growing economies.
Source: World Population Prospects - 2006 Revision
2.3.4 Buying Decisions Precisely speaking about the buying decision process, it consists of the following steps, which is
usually followed:
1. Need of Recognition
2. Information that satisfies the need of the customer
3. Alternatives/ Substitutes
4. Decision making on buying
5. Post behaviour after the purchase
In the retail industry, understanding the retail customers plays an important role in the success of
a retail store. The development of technology and globalisation has led to a new era of
consumerism where retailers focus completely on meeting the needs, wants and priorities of the
consumer. To understand the nature of the retail market, a retailer should analyse various factors
like population, demography, and the geography of a particular area. Population analysis helps
the retailer to understand potential markets. Retail buyers face daily decisions about which new
products and lines to carry, especially in fast-changing segments such as apparel and consumer
electronics. Merchandising professionals often rely on their instincts and experience to make
choices that can define a retailer’s identity and competitive advantage in the marketplace.
2.4 Major Markets
The story of globalisation of retail industry is interesting. After the happening of industrialisation
as well as the globalisation, world has became too small for the business. For the development as
well as for the growth companies are also concentrating on the global markets. Taking into
account the global market scenario, we have dealt in this chapter major market leader in retail of
some of the developed nations like USA, UK, Germany etc. We have shown the percentage
change in retail market of market leaders in respective countries.
A decade back, it was hard to imagine that international retailers would set up shop in your
neighbourhood. But global retail giants are now spreading their wings across the globe to cash in
on new opportunities.
2.4.1 USA The total retail share in the
world GDP is 27%, while
in the USA it
accounts for 22% of the
GDP. The US
retailing is divided into
three categories:
department stores, mass
merchandisers and
specialty stores. The biggest and most influential is mass merchandisers’ category, many of
which have enormous global buying power. Consumers in the US have become more value-
conscious, which has led to a movement in sales towards mass merchandisers and discount
stores. E-sales is also affecting retail sector, although its percentage is low. Competitive threat
faced by e-retailers is forcing traditional retailers to respond by competing on both price and
service levels.
Major Players:
Table 2.2: Top Four Players in the US by Revenue in 2006
Company Revenue in US$ billion Wal-Mart Stores Inc 351.14 Home Depot 90 Kroger Co 60.55 Target Corporation 59.49
Wal-Mart Stores Inc.: It is the world's largest public corporation by revenue, according to the
2008 Fortune Global 500. It is the largest private employer in the world and the fourth largest
utility or commercial employer, trailing the British National Health Service, and the Indian
Figure2.1: Retail Sales in US (2000 - 2006)
0
10002000
3000
40005000
6000
2000 2001 2002 2003 2004 2005 2006
Sale
s in
US$
billi
on
0.0
10.0
20.0
30.0
40.0
Gro
wth
%
Retail Sales in US $ billion Retail Sales Grow th %
Source:: E&Y Report, Cygnus Research
Railways. Wal-Mart is the largest grocery retailer in the United States, with an estimated 20% of
the retail grocery and consumables business, as well as the largest toy seller in the U.S.
Each week, about 100m customers, nearly one-third of the U.S. population, visit Wal-Mart's U.S.
stores. Wal-Mart customers give low prices as the most important reason for shopping there,
reflecting the "Low prices, always". The average US Wal-Mart customer's income is below the
national average, and analysts recently estimated that more than one-fifth of them lack a bank
account, twice the national rate.
Home Depot Inc : The Home Depot (NYSE: HD) is an American retailer of home
improvement and construction products and services. Headquartered in Vinings, just outside
Atlanta in unincorporated Cobb County, Georgia, the Home Depot employs more than 355,000
people and operates 2,141 big-box format stores across the United States (including the 50 U.S.
states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam), Canada (ten
provinces), Mexico and China. The world's second largest Home Depot (as of the end of 2007)
opened November 14, 2007 on the island of Guam.
2.4.2 The United Kingdom (UK)
The UK’s retail sector is
driven by strong housing
prices, low unemployment
and relatively low inflation.
The UK’s GDP reached
US$2 trillion in 2006,
registered a growth rate of
2.7% over 2005. The retail
sector accounts for around
20% of GDP.
After growing for around three years, the retail sector has now entered into a period of low
growth. The UK retail sector recorded a sale of over US$513.95 billion (about £255.56 billion)
Figure 2.2: Retail Sales in UK (2000 - 2006)
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006
Sal
es in
US
$ bi
llion
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Gro
wth
%
Retail Sales in US $ billion Retail Sales Growth %
Source:: E&Y Report, Cygnus Research
in 2006. The retail industry in the UK is the top service industry providing employment to nearly
3m people, which constitutes around 11% of the UK's total workforce. Online shopping is
becoming the fast growth engine of the UK retail sector, accounting for half the rise in spending
in 2007, according to retail monitoring group Verdict Research. It estimates that online
purchasing rose almost 29% in 2007, which is almost 20 times faster than the retail sector overall
at just 1.5%. Online shopping now accounts for most of the sector’s growth and at US$16.482
billion is almost equal to the US$18.894 billion achieved by department stores – and it is still
only 3.1% of the total US$532.65 billion sales.
Major Players:
Table 2.3: The Top Four Players in the UK by Revenue in 2006
Company US$ billion Tesco PLC 68.70 J Sainsbury 32.44 Safeway 40.18 Kingfisher 16.10
In June 2005, the retail industry employed 2.9m people. This equates to one in nine, or 11%, of
the total UK workforce, according to the Office for National Statistics (ONS). UK retail sales
were approximately $522.6 billion in 2005 (ONS). Retail is often seen as a stepping-stone for
entrepreneurs to start up in other business sectors. The sector is expected to see the creation of
270,000 new jobs till 2012, with 31% of these managerial/professional levels.
Tesco PLC is a British-based international grocery and general merchandising retail chain. It is
the largest British retailer by both global sales and domestic market share with profits exceeding
£2 billion. In 2008, the company overtook German retail giant Metro AG to become the world's
third largest retailer, the first movement among the top five since 2003. Tesco operates a "good,
better & best" policy for its products, encompassing several product categories such as food,
beverage, home, clothing, Tesco Mobile and financial services.
J Sainsbury plc is the parent company of Sainsbury's Supermarkets Ltd, commonly known as
Sainsbury's, a chain of supermarkets in the United Kingdom. The group also has interests in
property and banking. The group has an estate worth about £8.6 billion (March 2007). According
to Taylor Nelson Sofres rankings published in January 2008, Sainsbury's market share was
16.4% compared to Tesco's 31.5%, ASDA's 16.7% and Morrison's 11.4%.
2.4.3 Germany
Consumption makes
a significant portion
of German GDP
and the increasing
retail sales could act
as an indicator of
domestic demand.
High or rising retail
sales may spur
German
consumption, translating into economic growth. Germany’s GDP is estimated at US$2.63 trillion
in 2006, an increase of 1% against 2005. Germany’s retail market is the third largest in the world
having total estimated retail sales of US$393.87 billion in 2006. Like in the US, the discount
stores drive the growth of retail market in Germany.
Major Players:
Table 2.4: The Top Four Players in Germany by Revenue in 2006
Company US$ billion Metro AG 84.75 ALDI Einkauf 42.98 Rewe Handelsgruppe 50.70 Schwarz Group 42.57
Metro AG: is a diversified retail and wholesale/cash and carry group based in Germany. It has
the largest market share in its home market, and is one of the most globalised retail and
wholesale corporations. In English it often refers to itself as Metro Group. According to a 2008
report by Deloitte Touche Tohmatsu, Metro is Europe's third largest retailer, after Tesco of the
UK and Carrefour of France. If Metro's cash and carry operations, which are its largest division,
are not counted as retail, it also ranks behind Tesco, and possibly a few other European retailers.
The cash and carry division's page on the company's official English language website states that
the company is the, "World market leader in the wholesale business", implicitly excluding the
cash and carry division from the retail sector.
Figure 2.3: Retail Sales in Germany (2000 - 2006)
330340350360370380390400
2001 2002 2003 2004 2005 2006
Sale
s in
US$
bill
ion
0.00.51.01.52.02.53.0
Gro
wth
%
Retail Sales in US$ billion % Growth
Source:: E&Y Report, Cygnus Research
ALDI Einkauf: is a discount supermarket chain based in Germany. The chain is made up of two
separate groups, ALDI Nord ("North" - operating as ALDI MARKT) and ALDI Süd ("South" -
operating as ALDI SÜD),
which operate
independently from each
other in specific market
boundaries. The Aldi group
operates about 7,600
individual stores
worldwide. A new store
opens every week. Aldi
Nord is responsible for the
markets in Belgium, the Netherlands, Luxembourg, France, Spain, Portugal and Denmark. Aldi
Süd caters to the markets of Austria, the United Kingdom, Ireland, the United States, Australia,
Switzerland and Slovenia.
2.4.4 Japan
Japan is the world’s second largest retail industry and it is highly fragmented with a majority of
stores run by small businessmen. Japan’s GDP reached US$4.22 trillion in 2006, by registering
a growth rate of 2.1% in 2005 and the consumer demand makes up around 55% of GDP. It was
estimated that the Japanese retail industry will reach US$1.43 trillion in 2006, registering a
growth rate of 8% in 2005. Deregulation in Japan over the last decade has led to its long
recessionary climate to restructure the retail and distribution sector by opening up the economy
to foreign retailers. The problems faced by foreign retailers in Japan include the reluctance of
suppliers to deal with the foreign interlopers and inability to satisfy the expectations of the
Japanese consumers.
Major Players:
Table 2.5: Top Four Players in the Germany by Revenue in 2006
Figure 2.4: Retail Sales in Japan (2000 - 2006)
0
500
1000
1500
2000
2001 2002 2003 2004 2005 2006
Sal
es in
US
$ bi
llion
-10.0
0.0
10.0
20.0
30.0
40.0
Gro
wth
%
Retail Sales in US$ billion % Growth
Source: E&Y Report, Cygnus Research
Company US$ billion Ito Yokado 12.84 Aeon Co 37.54 Daiei Inc 14.5 Uny Co 10.3
Source: www.hed.msu.edu
Note: For Aeon & Uny FY05 has been taken
ITO YOKADO: is a Japanese General Merchandise Store, part of Seven & I Holdings Co. The
group has expanded to China, where they formed a joint venture with Wangfujing Department
Store and China Huafu Trade & Development Group Corp. to open one of five stores in Beijing.
Currently 9 stores exist in Beijing and 3 more in Chengdu with plans to expand elsewhere. In
addition to food (more than half of total sales), the stores sell apparel, household goods, and
more. Ito-Yokado is second only to rival AEON with nearly 12% of Japan's superstore market.
(AEON's share is just over 14%). Formerly a holding company for businesses that included
banks, convenience stores, and restaurants, Ito-Yokado is now a subsidiary and the core
operating company of Japan's largest retail conglomerate Seven & I Holdings's domestic
superstore business.
AEON Co: Formerly known as JUSCO AEON Co Ltd is the largest retailer in Japan. Through
ownership, joint ventures, and investments, AEON controls approximately 4,000 stores
worldwide. Under the AEON corporate umbrella are 460 JUSCO superstores, 2,600 Mini Stop
convenience stores, 665 supermarket stores, and 1,900 AEON Welcia drug stores. The company
owns 60% of the women's apparel chain. Customers prefer to shop at AEON because they
believe there is no better source for their daily necessities that so thoroughly addresses very real
concerns for product reliability and food safety. Its private-brand TOPVALU products are
carefully selected with all of these customer needs in mind, to support a healthy, worry-free and
enjoyable lifestyle. The brand encompasses 2,400 products in the food, clothing, recreational,
house wares and home-furnishing sectors. For nearly 10 years, AEON has worked to bring the
full force of its buying power and cost efficiency to TOPVALU products so as to deliver
consistently low prices at an unswervingly high level of quality.
2.5 Growth Drivers
According to the research and analytics firm, A.T. Kearney, with high GDP growth, fall in
unemployment, high disposable income and a huge unorganised retail sector is a potential gold
mine for major retailers of the world such as Wal-Mart, Carrefour, Tesco and others. However,
retail is not the same in emerging markets. Different economic, social and political factors create
a need to reinvent marketing and operation strategy. Demographics and income levels create a
diverse set of requirements that may challenge existing business models and value chain
strategies. Since 2001, 90 new markets have been entered by more than 49 global retailers, but at
the same time in 2005, 17 retailers left markets. Some factors which have fuelled growth in
global retail industry are discussed below.
2.5.1 GDP growth The US economy, which is more than US$11 trillion, is the largest in the world. Japan’s
economy which is at around US$4.22 trillion is the second largest in the world, followed by
Germany and UK. In fast growing economies the GDP is mainly driven by consumption, which
in turn is affecting the retail growth. The GDP is increasing at a faster pace, thereby leading to
change in standard of living towards higher side. This change demands better quality of goods
and services. That’s why countries like India and China are also giving boost to the retail
industry. Many formats of retail industry are now being accepted.
Table 2.6: GDP Average Annual Growth (2004 – 2008) Country China India Malaysia Thailand Singapore Annual Growth % 8.4 7.2 5.4 5.3 5.2 Source: Global Economic Outlook IMF
2.5.2 Consumers’ Desire for Something Unique
Consumer’s desire for something new drives the retail industry. Companies are getting more
focused on giving consumers something new and unique to survive in this mature industry.
Today’s consumer is extremely selective and if the retailer wants his business to grow profitable
he must meet the specific needs of the consumer. The departments at the retailing industry are
adopting new technologies to help their employers collect better information from the customers
to predict consumer demand patterns.
2.5.3 Increased Spending on IT by Retailers According to SearchCIO.com, a recent survey shows that IT spending by mid market retailers
worldwide will grow from US$22 billion in 2004 to US$31 billion in 2009, an annual compound
growth rate of 7%. The survey found that mid market retailers will spend US$161m on ERP and
supply chain management software in 2005 alone. Investments in customer relationship
management (CRM), wireless networking and web hosting are expected to reach US$679m by
the end of 2005 and grow to US$946m by 2009, a 9% compound annual growth rate
2.5.4 Online shopping
While retail stores remain the dominant shopping channel, the Internet is the only channel that is
increasing the number of respondents that shop online. The 24-hour availability and better
selection online increased considerably as a factor in shopper's decision to shop online. Online
shopping growing as a sales channel reveals that price is declining as a driver of online sales.
2.5.5 Looking East for Growth
Southeast Asia, Central Europe, Russia and China markets are attracting retailers. It is not that
China is the cheapest place to do the business but it’s because of its vast market size and
population. China opened its gates for the foreign retailers when it joined WTO in 2001. It also
offered tax incentives to foreign retailers, traders and wholesalers for operating in special
economic zones.
2.5.6 Technology It’s a fact that technology has helped a lot in retail boom. But as the technology has evolved into
a huge dimension as well as the acceptance of the latest technology by the retailers, it led the
boom of the retail industry. For example, if an individual enters into huge retail outlet, he first
thinks the size of retail outlet. Previously, any retail outlet is to operate in a small room, whereas,
now it’s been turned into huge retail complex. Retail outlet is equipped with RFID technology,
which helps in reduction of theft. Almost all the latest retail format is having “bar-scanner”,
which is directly connected with the computer, very much helpful in retail outlet in the payment
counters. Bar scanning while use of the UPC (Universal Product Code) in product labelling has
almost become a necessity with the advent of optical scanning technology in the retail market
industry. CCTV (Close circuit television) is also helping the global retail industry a lot. In every
part of the world, CCTV is installed in huge retail outlet, thereby reducing and controlling the
theft in the store. The database of the products are saved in the computers, it have had the
information about which product is where, how much is the price, what amount of quantity is
there in the retail outlet. Security mechanism installed at the entrance of the store helps in
maintaining the security standard of the retail outlet.
2.5.7 Growth of Private Labels
Private labels are products manufactured for sale under a specific retailer brand. They are often
designed to compete with branded products, offering customers a cheaper alternative to national
brands. Though the public is generally used to see them as low-cost imitations of branded
products, private labels have overcome this reputation and achieved significant growth in recent
years. Private labels offer several benefits to both retailers and customers. For retailers, margins
on private label goods are an average of 10% higher than those on similar branded products.
Customers benefit from the lower prices, which are often significantly less than those of national
brands. This combination, while beneficial to retailers and consumers, can put substantial
pressure on the manufacturers of branded goods, who have to compete with their own customers.
For instance, Tesco in Europe has a range called the Tesco Finest Line, which sells only
premium products at premium prices. It also has Tesco Value Line, which is cheaper and
competes with Tesco Finest Line. Tesco’s Finest Chocolate sells at 50% premium over, say,
Cadbury’s. Similarly, its yogurt sells at more than 50% premium over Danone and other yogurts.
2.6 Recent Trends and Developments
The retail market has experienced a significant change in recent years. By the early 1980s the
regional mall
shopping had
begun to lose
shares to other
retail forms.
Changes
continue today,
requiring
developers,
retailers and
service
providers to
create new type of stores to stay competitive. Developing countries are showing more rapid
growth potential. A. T. Kearney did a study in which Global Retail Development Index (GRDI)
was calculated. While calculation four factors were considered: Country Risk (25%), Market
Attractiveness (25%), Market Saturation (30%) and Time Pressure (20%). The bracketed figures
indicate the weight age given to the factors. India came at top with a GRDI score of 92, followed
by Russia and China with score of 89 and 86 respectively as shown below.
2.6.1 Radio Frequency Identification (RFID) technology
Radio-frequency identification (RFID) is an automatic identification method, relying on storing
and remotely retrieving data using devices called RFID tags or transponders. An RFID tag is an
object that can be applied to or incorporated into a product, animal, or person for the purpose of
identification using radio waves. Some tags can be read from several meters away and beyond
the line of sight of the reader.
RFID technology is going to reduce costs, optimise supply chain processes and improve
productivity and profits. Countries like the US, UK and Japan are leading the way in deploying
Source: AT Kearney Report 2007
Figure 2.5: Global Retail Development Index (GRDI)2007
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20
40
60
80
100
Indi
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Rus
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Chi
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Viet
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core
RFID technology, though China is expected to close the gap by 2009. The benefits that RFID
technology offers are manifold and include –
1. Improved efficiency and visibility,
2. Lower costs,
3. Lower inventory levels yet constant product availability,
4. Better asset utilisation and increased sales through better out-of-stock goods management.
With Wal-Mart mandating the use of RFID amongst its top-100 suppliers, and others like Tesco,
Metro, JC Penny, Gap and Marks & Spencers joining the RFID bandwagon, the technology is
well on its way to establishing a stronghold within the retail sector.
2.6.2 Consolidation and Global Expansion
In the last few years, most of the retailers re-examined their strategies, focusing on the core
business to survive in a relatively mature industry. In 2004, the Mergers and Acquisitions
(M&A) activity was on the increase and in the first quarter of 2005, the retail sector recorded the
largest increase, up by 175%. The factors that have influenced M&A activity the most are
intense competition in the domestic market, declining population growth rate and low prices. In
addition to it, globalisation of trade is being encouraged by the adoption of certain trade
agreements such as NAFTA, which lowers a barrier to international trade. Global expansion by
major retailers is occurring in emerging markets such as Southeast Asia and China. For instance,
in Indian scenario, the global retail giant Wal-Mart Stores Inc entered into a joint venture with
Indian conglomerate Bharti Tele-ventures. But due to some legal issues, Wal-Mart is providing
only back-end support to Bharti for retailing.
If we consider the Indian scenario, global leader in retailing i.e. Wal-Mart has entered into joint
venture with Indian telecom giant Bharti Group. As the government has allowed 51% investment
in retail markets through FDI, Wal-Mart has entered the Indian market after signing the joint-
venture agreement with Bharti group. Carrefour of Italy is also planning to enter the Indian
markets. Similarly in apparel retail, almost all the international branded denim companies is
having tie-ups with Arvind Mills, an establishment of Lalbhai group. In the second half of 2007,
European giant in diary retail “Danone Group” had entered Indian market with Britannia,
however, that venture ended up with a huge smoke.
From the beginning of 2005, M&A activity in the global retail market has been high. Total M&A
activity in the 17 months from January 2005 through May 2006 was $86.7 billion, whereas
M&A activity from 2000 to 2004, a 60 month period, totalled $51.0 billion. M&A in the retail
market can be divided into two segments: financial investments and strategic consolidations.
Financial investments in the retail sector are generally short-term investments, involving
restructuring and the sale of assets. Strategic consolidations are often mergers whereby
companies can gain economies of scale, better enabling them to compete with superstores.
2.6.3 Consumer trends
Retail sector has been a consumer-led industry. People are working longer hours than before, and
many married women with children too are working. Consumers want the convenience of longer
trading hours with a Sunday opening and where possible, retailers have responded - for example,
12% of packaged groceries in Sydney are now bought on Sundays and many stores are open until
midnight. Many retailers have introduced more fast lanes to accommodate the "little but often"
shopper.
2.6.4 Augmented use of Smart cards
Smart card is a card that is embedded with a microprocessor and memory chip, similar to debit
card and prepaid phone card. Retailers issue these cards for loyalty program. Instant discounts
are given to the privileged customers. Customers also like to carry one card instead of carrying
10 cards. In India, retail giants like Tata sponsored Westside, and Future group sponsored Big
Bazaar, each of them have introduced the loyalty card for their customers, in which customers
can enjoy many kinds of benefits. With the application of such cards, they can accumulate points
and can earn rewards or can purchase goods using the accumulated award points.
2.6.5 Self Service
Bigger retailers are including self service check-out lanes in their stores. An increasing
population these days likes these self-serve lanes because they usually take less time than lanes
with register clerks. Self service is the practice of serving oneself, usually when purchasing
items. Common examples include many gas stations, where the customer pumps their own gas
rather than have an attendant do it. Automatic Teller Machines (ATMs) in the banking world
have also revolutionised how people withdraw and deposit funds. In most of stores around the
world, the customer uses a shopping cart in the store, placing the items they want to buy into the
cart and then proceeding to the checkout counter/aisles.
2.6.6 Intelligent Shopping Trolleys
Supermarket trolleys have always been pretty basic. Microsoft is co-developing a new one
featuring an integrated display that tells the customer what to buy, what aisle it’s in and how
much he/she has spent. Dubbed Media-Cart, shoppers can swipe their loyalty card through a
scanner on the trolley’s handle at the beginning of their shop. Targeted video adverts, based on
information about previous shopping habits, will then be shown on a 12-inch retractable colour
display as they browse the aisles. The screen will be managed by several Microsoft technologies,
including Windows CE and Microsoft SQL Server. A power unit will sit in the trolley’s base.
A “cart-level checkout feature”, rivalling RFID, may also be built into the trolley. Shoppers
would manually scan their own items on the display before putting them into the trolley, while
the total cost of their shopping would be calculated before they leave the store. This gives a
pleasant shopping experience, without having to pass through the supermarket’s check-out aisles.
2.7 Issues and Challenges
In developing countries, retailers face competition from low cost producers, whose ability to
deliver high quality products at lower prices has grown very rapidly. Retailers have been taking
advantage from these low cost producers but at the same time facing competition from
established players. Consumers are also growing more demanding and want more value, stylish
and innovative products at a low cost. Another issue of major concern is the emergence of the
web based counters like e-bay, future bazaar etc. Customers are purchasing their respective
commodities through Internet, as they lack sufficient time for shopping. This kind of counters are
in a nascent stage, however, they are giving stiff competition to established retail outlets.
Following are some of the issues and challenges facing global retail industry.
2.7.1 Supply Chain Efficiency
Retailers realise that in order to improve their businesses, it is important for them to reinvest in
new technologies and programs. According to a study done by National Retail Foundation and
BearingPoint Inc, retailers should focus on supply chain efficiency to stay competitive. Supply
chain management (SCM) is the process of planning, implementing and controlling the
operations of the supply chain as efficiently as possible. Supply Chain Management spans all
movement and storage of raw materials, work-in-process inventory, and finished goods from
point-of-origin to point-of-consumption. SCM integrates supply and demand management within
and across companies. More recently, the loosely coupled, self-organising network of businesses
that cooperates to provide product and service offerings has been called the “Extended
Enterprise”. Firms in the extended enterprise may operate independently, for example, through
market mechanisms, or cooperatively through agreements and contracts.
2.7.2 Smart Pricing
It is the practice of charging different buyers different prices for the same product. Even small
and midsize businesses can make price changes per day according to the market conditions. But
smart pricing is the biggest challenge for retailers offering online shopping. Because Internet
allows customers to easily share information with one another, consumers will be unhappy if
they believe they have paid more for a product. It is often referred as “Price Discrimination.”
Price discrimination exists when sales of identical goods or services are transacted at different
prices from the same provider. In a theoretical market with perfect information, no transaction
costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price
discrimination can be a feature only of monopoly markets. It is one of the strategies used by the
retail industries to maintain and stand itself in “highly cut throat competitive market”.
2.6.3 Deployment of Technology
RFID is important technology in whole of retail business value chain. However its deployment
has two major deployment problems.
The first is that RFID companies do not fully understand the business and challenges of retailing
and, conversely, retailers don't fully understand RFID technology. Highly publicized initiatives
by Wal-Mart, Target, and the likes, this problem is less pronounced. But other retailers;
disconnect of understanding technology and domain space between retailers and technology
implementers hinders healthy and rapid adoption of RFID throughout the retail space.
The second problem has to do with retailers' solution to their RFID shortcomings: they outsource
the work to technology consulting companies. Here the problem is that the big, top-name
consulting companies that are usually tapped for the job are characteristically conservative with
new technology. At this early stage in the game, RFID remains an early-adopter technology, and
an innovative, experimental approach is preferred. Thus, the creative consulting firms are a better
option, as they are more likely to offer the out-of-the-box thinking that successful RFID
deployments require. Their obvious drawback is their small size; many such niche RFID outfits
would be overwhelmed by the scope of reengineering a retailer's supply chain around RFID.
2.7.4 Shifting Demographic Trends
The complex challenge for the retailers today is to understand and serve individuals in a world of
more than six billion global customers. Most of the retailers start with demographic segmentation
to better understand the profile of the customers. The overall demographic trend is expected to
change slowly but the retailers should monitor the shift in demographic trends. An understanding
of shifting demographic trends help retailers plan better for their workforce. Now the tastes and
the preference of the customer has changed. Now on the customers are looking the shopping as a
leisure activity as compared to necessity a decade ago. Customers are looking for all kinds of
facility while going for shopping. Now purchasing any commodity from a huge retail outlet is a
matter of status. Customers want one stop destination for their shopping. This what the main
challenge faced by the all retailers. They can’t provide all those things which a customer
demands. This is also one of the major reasons behind the evolution of huge retail complex.
However, in huge multi-outlets, customers can easily park their vehicles; can purchase different
goods and services from the same destination. They can purchase anything that ranges from
house-hold item to expensive jewelleries, from domestic brand of clothing to expensive Versace
or Armani.
2.8 Outlook
Global retail sales reached an estimated value of US$10.4 trillion in 2006, by registering a
growth rate of 3.6% in 2005. Growth was slow in early 2005 as monetary policy was tightened in
the OECD countries. The trend of globalisation and expansion of big retailers into emerging
countries, particularly into Southeast Asia was seen. The threat of inflation and rising interest
rates will pressurize the disposable income in 2006 but the consumer spending will be there,
especially on unique kid’s items. For retail technology vendors the focus for retail enterprise
applications must be on three critical priorities: intelligence, integration, and usability. Of the
three, usability remains the greatest weakness and the greatest vendor opportunity as traditional
merchants struggle with the transformation of their legacy applications into insight-driven
workbenches.
Finally, Cygnus believes that vendors should clearly define their capabilities for supporting
retailer global expansion, including specific regional or country-specific configurations that
exist. Rising oil prices can drive up the price of consumer goods as the costs of transporting
products from manufacturer to market increases. Rising oil prices have impacted consumer
spending in 2005. The increasing demand for energy may also push back-office costs up, which
could impact both retailers and suppliers. Large retailers in mature markets will grow through
acquisitions in emerging countries such as Southeast Asia, Central Europe and Russia, which
offer the best potential as household income rises. Deregulation in China and India will open
gates for international retailers to expand into new markets.
Conclusion
Large superstores, including Wal-Mart (US), Carrefour (France), Metro (Germany), and Tesco
(UK), have transformed the global retail market by selling merchandise in multiple retail
segments (clothing, house wares, and groceries) at the expense of more specialised retailers. In
the US, from 2000 to 2005, grocers’ sales grew at an average annual rate of 2% and department
stores’ sales decreased at an average annual rate of 1%, while “other general merchandise
stores,” a category that includes superstores, grew at an annual average of 10%. Worldwide,
department stores’ share of apparel and shoe sales fell from approximately 59% in 2000 to 48%
in 2005, while food stores’ share of food sales fell from 49% in 2000 to 43% in 2005.
Retailers have increased their market share by competing in terms of price. Economies of scale
and technological advancement in inventory management have helped in achieving lower costs.
Large networks enable the retailers to negotiate for high-volume discounts from suppliers. High
volume purchasing also allows retailers to control their own supply chains, integrating various
technologies to further reduce costs. The technologies include quick response systems that link
retailers’ point of sale scanners to vendors or distribution centres through electronic data
interchange, allowing the retailer to order new supplies without delay, while avoiding costs
associated with overstocking. Retailers are also beginning to implement RFID, a substitute for
bar coding, enabling closer tracking of inventory.
